New European AML/CFT rules: what's in the package?

On May 30, the European Council adopted a comprehensive package of new measures to combat money laundering and terrorist financing (anti-money laundering and countering the financing of terrorism AML/CFT), which had been approved by the European Parliament on April 24. The legislative acts within the package will enter into force upon publication in the Official Journal of the EU in the near future. However, their provisions will only become operational in three years (and in some cases, in five years) after entry into force.

The new regulations aim to eliminate loopholes that criminals exploit to launder illicit proceeds or finance terrorist activities through the financial system. Additionally, novel legal mechanisms are being introduced to combat economic sanctions evasion, including the inclusion of high-value goods dealers within the scope of entities subject to primary financial monitoring.

Which documents are included within the package?

Directive VI on the prevention of the use of the financial system for money laundering or terrorist financing (AMLD6).
Single Rulebook for Anti-Money Laundering and Countering the Financing of Terrorism (Single Rulebook).
Regulation on the establishment of a supervisory authority in the field of prevention of money laundering (Countering anti-money laundering and terrorist financing (AMLA Regulation).
Updated Regulation on money transfers, which was published in the Official Journal of the EU on 9 June 2023 - (Regulation (EU) 2023/1113).

The European Commission presented this package of legislative proposals to strengthen AML/CFT on 20 July 2021, however it was only adopted at the end of May 2024.

AMLD6

Directive VI introduces stricter rules for obtaining accurate and up-to-date information on beneficial owners. Authorities responsible for registers (UBO registers) are granted enhanced powers to verify information, for instance, including the authority to conduct on-site inspections of legal entities when there are some doubts concerning the veracity of the submitted information.

Individuals with legitimate interests, including journalists, civil society representatives, competent and supervisory authorities, will have unhindered access to beneficial ownership information, which is stored in the national registers and interconnected in the EU. Information in the registers will be retained for at least five years.

The provisions of the Directive are aimed at improving cooperation between national Financial Intelligence Units of member states (Financial Intelligence Units, FIUs) and EU-level supervisory bodies. In addition to access to UBO registers, FIUs will gain direct access to financial, administrative, and law enforcement information, including tax information and data on funds and assets frozen in accordance with financial sanctions. A framework will be imposed which will enable FIUs to suspend or withhold consent for a transaction suspected of money laundering or terrorist financing.

EU member states will make information from centralized bank account registers, containing data on who holds which bank account and where, accessible to FIUs through a single point of access. Harmonization of the bank statement format will also take place. Direct access to bank account information and the use of agreed-upon statement formats by banks are crucial tools in combating criminal offenses, tracing, and confiscating proceeds of crime.

Single Rulebook for AML/CFT

The Single Rulebook harmonizes anti-money laundering and countering the financing of terrorism rules across the EU, closing potential loopholes exploited by criminals to launder illicit proceeds and finance terrorist activities through the financial system.

Under the provisions of the Single Rulebook, the EU's list of entities subject to primary financial monitoring will be expanded. Specifically, it will include all types of crypto-assets (Crypto-asset Service Providers, CASPs). CASPs will be subject to the same requirements as banks and other financial institutions. Additionally, crowdfunding service providers, mortgage and credit intermediaries, and high-value goods dealers will also be included into this list. This includes jewelry and watches worth over €10,000, vehicles worth over €250,000, and aircraft and boats worth over €7,500,000.

Dealers will be required to notify the relevant Financial Intelligence Unit of transactions involving the purchase and sale of these goods by customers for private non-commercial use. To implement this system, they will need to collect information from their customers to determine whether the use of high-value goods will be commercial or non-commercial.

Effective from 2029, top-tier professional football clubs are to be engaged in high-value financial transactions with investors or sponsors, including advertisers, and player transfers will be added to the list of entities subject to primary financial monitoring. This expansion aims to address the increasing use of football clubs for money laundering and terrorist financing purposes.

The Single Rulebook will introduce a pan-European €10 000 limit on cash payments for commercial transactions (this does not apply to payments between private individuals in a non-professional context). Member states will have the discretion to set a lower maximum limit at the national level. Additionally, primary financial monitoring entities will be obliged to identify and verify the identity of any customer making cash transactions between €3 000 and €10 000. The Rulebook also includes provisions for enhanced due diligence on ultra-high-net-worth individuals (UHNWIs) with total assets exceeding €50 000 000.

Establishment of the European Authority for Anti-Money Laundering and Countering the Financing of Terrorism

In the view of European experts, the creation of European Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLA) is considered to be one of the most significant innovations within the AML/CFT package. This new EU-level authority will commence operations in Frankfurt by 1 July 2025.

This institution will undertake integrated oversight of the implementation of the new AML/CFT rules across both the financial and non-financial sectors and will have the power to impose sanctions and penalties on non-compliant entities. AMLA will directly supervise high-risk credit and financial institutions. These institutions will be subject to direct supervision by joint supervisory groups under the leadership of AMLA, comprising staff from national supervisory authorities in the member states where each institution operates. AMLA will also oversee the implementation of targeted financial sanctions.

Given the cross-border nature of financial crimes, a new institution will enhance the effectiveness of the anti-money laundering and countering the financing of terrorism framework by interacting with national supervisory authorities in the financial sector. AMLA will play a supporting role for the non-financial sector and will coordinate and support financial intelligence units.

Updated Regulation on Money Transfers

The provisions of the Regulation aim to make cryptocurrency transfers more transparent and traceable. The topic under consideration is the feasibility of tracking the cryptocurrency flows with the same effectiveness as fiat currency transactions. The Regulation will apply to payment service providers and CASPs (Crypto-asset Service Providers) from 30 December 2024, coinciding with the full implementation of the Markets in Crypto-Assets Regulation (MiCA).

Conclusion

Banks, financial institutions, and other primary financial monitoring entities have time to carefully assess the new requirements under this AML/CFT legislative package. Updates will be needed to internal policies, procedures, systems, and controls. This is a significant undertaking that will ultimately strengthen the EU's global AML/CFT framework.

In light of this, implementing such measures in the context of the close economic ties among countries around the world will inevitably have an impact on all those who are connected to the EU, open bank accounts there, purchase real estate or high-value goods, or register businesses.